Is the slump slowing developers' investment in green architecture?
Our clients fall into two basic categories: investors and corporate owner/occupiers. When you are an owner/occupier, there is a pretty clear return on investment. If you are saving energy, it is going right to the corporate bottom line. And a lot of corporations have social responsibility programs and public goals for reducing their carbon footprint. They recognize that a large portion of their environmental footprint is tied up in real estate. So, they have been pretty progressive. On the investor side, investors in multitenant office buildings have been a bit slower to pick up on this. But that has begun to change quite dramatically in the last six months or so.
Why the sudden change among investors?
Talking primarily about existing buildings, there are a number of drivers. Investors want to lower operating expenses, so energy retrofits start to make sense. They are starting to see what is going on in the regulatory environment and want to be out ahead of it. And in down cycles, investors want to find every angle, to be more competitive in the marketplace. Their tenants are starting to ask questions. Sustainability is not number one on the list of a prospective tenant picking a location, but it is on the list. It is getting incorporated into RFPs. Then developers are saying, "Well, gee, how does my building compare? How do I stack up? Are there things I can or should be doing?" Which comes back to our acquisition of the Green Globes tool from ECG for assessment and helping someone improve their building ["Real Estate Investor Acquires Green Globes Developer," August 2008].
Credit: Stefan Hester
What about new construction? Are you seeing enthusiasm on the part of real estate investors in sustainability?
We are continuing to see increasing enthusiasm. It is a matter of degree. There had been some cost premium in the past to building buildings that meet certain green standards. That is quickly evaporating as new materials become available—the market for recyclable materials that was not there a couple years ago to the extent it is now—and as architects and engineers better understand green building criteria and are able to incorporate those concepts into their design. Not every new building is going to be built to meet LEED Platinum, for instance, but you are going to see good environmental design built into all new buildings. On the energy side alone, with the escalating prices, the numbers show that buildings built to LEED standards have operating expenses as much as 30 percent less than conventionally designed buildings. Those are pretty hard numbers to ignore. You are also starting to see the impact of sustainability on location strategies. Companies are getting more focused on location strategies that enable them to be close to where their employees live or close to public transportation. Everybody's commute is part of the company's carbon footprint.
Is there an appreciable swing away from suburban properties?
I think it is too soon to see the impact of that thinking in the market, but it may be coming. Locating way out in some greenfield development in a remote suburb has its own implications in terms of the environment, but looking at urban infill and public transportation and transit-oriented development is going to become much more popular.
Are we at a watershed moment? It seems like the stars are aligning.
You know, it has really shifted to a business imperative. It is about the fact that energy costs continue to escalate, are extremely volatile. Buildings that are designed to these standards just perform better and have lower operating expenses. Corporations are feeling pressure from their shareholders about the environmental performance of the building, and they want to understand if there is some future risk because of legislation. Customers are asking companies about their environmental performance before they do business with them. Prospective employees are considering the environmental performance of a company before they go work for them. And then you do have the regulatory environment, which just increases every day. And the popular thinking is, no matter which candidate wins the presidential election, they are both advocating a more progressive legislative agenda in this area. So, there are all these forces coming at companies. The smart investors see that, and if their building is not meeting some level of environmental standards, they may become less competitive.